34 Billion Reasons Microsoft's Next CEO Will Stay the Course

While you're reading this, Microsoft is deep in the process of selecting its next CEO.

To recap, Steve Ballmer is retiring within 12 months of his August announcement that he'll step down from the CEO role. The latest reporting as I write this comes from Reuters, citing sources close to the situation who say the Microsoft Board of Directors selection committee has narrowed the list to about five external candidates and at least three internal candidates. The report named four of them: Ford CEO Alan Mulally, former Nokia CEO Stephen Elop and senior Microsoft executives Tony Bates and Satya Nadella.

I don't think it matters who replaces Steve Ballmer in terms of Microsoft's business strategy. The "Devices and Services" course that Ballmer has set Microsoft on is irreversible. Whoever is the next CEO will have to continue it.

This really hit home for me in early October when I was putting together a presentation for SMB Nation Fall in Las Vegas. I started adding up all of Microsoft's fixed investments in Devices and Services and the amount is staggering.

Any accounting is necessarily fuzzy. These figures come from public reports, Microsoft's SEC statements and, in some cases, outright guesses. But here goes (all figures rounded to the nearest billion):

Devices: Microsoft's expenditures on devices include $7 billion for Nokia, a $1 billion writedown for Surface, and research and development for Windows Phone and Surface, which I'll put at $1 billion (in the category of wild, wild guesses). So that's $9 billion invested in the Devices half of the strategy, and I think my number is low, even leaving the non-IT-channel-relevant Xbox out of the equation.

That's $34 billion in sunk costs in the Devices and Services strategy. Quibble if you want -- don't think Skype or Yammer really belong in here? OK, $25 billion total. Either way, what new CEO can come in and say, "We're going to throw out all that investment and refocus on the on-premises enterprise software that worked so well for us in the mid-2000s when the tech world was a different place"? I don't see it happening.

Steve Ballmer will be out of the corner office soon, but the datacenters and device manufacturing supply chains that he committed Microsoft to will anchor the next CEO to Ballmer's Devices and Services strategy.